Stocks drop, oil prices surge as Iran conflict hits global markets
The market response to the United States鈥� and Israel鈥檚 military strikes against Iran has been global and almost universally negative. Stocks began slumping as early as Friday in a 鈥渞isk-off鈥� response as word of impending action spread. By Monday, major indexes in Asia and Europe were off by nearly 1% or more, relative to Friday's close. Oil prices rose. The killing of the Middle Eastern nation鈥檚 supreme leader, Ali Khamenei, added extra uncertainty to the already volatile situation.
Key questions remain, including how long the conflict will last, the scope and consequences of counterattacks, and what Iran鈥檚 government will be like going forward.
Oil prices represent the conflict鈥檚 key variable for the world economy. Besides its own output, roughly 4% of the world鈥檚 oil market, Iran also has the military capability to strike oil facilities throughout the Middle East. Iran also borders the strategic Strait of Hormuz through which almost a third of the world鈥檚 seaborne oil flows. As of Sunday, the strait has been effectively closed to commercial traffic, following the Iranian Revolutionary Guard Corps鈥� warning to ships not to pass.
Why We Wrote This
U.S. and Israeli strikes on Iran have pushed up oil prices and shaken global financial markets. Much depends on how long the conflict lasts and whether the Strait of Hormuz remains closed.
Three ships came under attack over the weekend, causing most oil tankers to drop anchor before entering the waterway, a critical energy chokepoint, through which over 20 million barrels per day of liquid petroleum pass, much of it bound for Asia. Brent crude, a benchmark for oil prices, surged more than 7% to nearly $80 a barrel.聽Some analysts say it could hit $100 if the conflict persists.
Since Saturday, Iran has launched missiles and drones toward the United Arab Emirates, Bahrain, Qatar, Kuwait, Jordan, and Saudi Arabia, hitting airports and other civilian infrastructure. But Ali Larijani, head of Iran鈥檚 National Security Council, aren鈥檛 Gulf nations, only U.S. bases in those nations. Iran has also retaliated against Israel.
In the U.S., energy analysts said the strikes against Iran would push average gasoline prices above $3 a gallon. (In January, regular gas averaged $2.70 per gallon, according to the U.S. Energy Information Administration.)
By Monday, China鈥檚 Hang Seng index closed down more than 2%. Japan鈥檚 Nikkei lost 1.4%, and European bourses echoed those declines. In the U.S., futures prices for the S&P 500, the Dow Jones Industrial Average, and the tech-heavy NASDAQ were all down by 1% or more.
If the conflict drags on and oil prices stay high, the economic toll on nations, including the U.S., is likely to grow. One threat is higher prices, not only at the pump, but also for energy-intensive industries, such as airlines and trucking, chemical and steel manufacturing, and farming. Higher costs, in turn, typically act as a drag on growth.
